During the first half of 2006, Austria’s government assumed the rotating six-month EU presidency. The list of objectives included measures aimed at reviving the derailed EU constitution and the euro zone’s flagging economy while also attempting to restore the trust and confidence of citizens in the EU. In the event, the Austrian presidency was largely overshadowed by global events. Although little substantial progress was reached regarding the future direction of the constitution or the prospects for EU enlargement, the Austrian presidency could claim some success in having agreed on a new EU budget and a new services directive, as well as having made progress toward a common European energy policy.

In February the attention of the world’s media was briefly focused on Austria after a Vienna court sentenced British historian David Irving to three years in jail for speeches that he had made in 1989 in which he denied the occurrence of the Holocaust. Austria had some of the toughest Holocaust-denial laws in Europe, but the verdict was still harsher than many legal experts had predicted. The global media descended on Austria again in August following reports that 18-year-old Natascha Kampusch had escaped from a house in a quiet suburb of Vienna after having been held captive in an underground cell for eight years. The disappearance of Kampusch in 1998, at the age of 10, had shocked Austria and triggered a massive police hunt. The kidnapper, 44-year-old communications technician Wolfgang Priklopil, committed suicide immediately following Kampusch’s escape, and his motives for the kidnapping remained unclear.

On October 1 the country’s parliamentary elections were held. From early in the year, the main opposition Social Democratic Party (SPÖ) appeared on course to mount a successful challenge to the centre-right Austrian People’s Party (ÖVP), the senior partner in the outgoing ruling coalition. The SPÖ suffered a setback in March following a scandal that involved Austria’s fourth largest bank, Bawag, which was owned by the country’s trade union federation. Bawag came close to financial collapse when reports emerged that the bank’s involvement in speculative transactions in the U.S. and the Caribbean in the late 1990s had resulted in financial losses of €1.3 billion (about $1.55 billion). Only a last-ditch bail-out package by the government averted Bawag’s impending insolvency. The credibility of the SPÖ, meanwhile, was badly damaged. The public’s close association of the party with the trade union movement (whose president was forced to resign over the scandal) led to a slump in support. When the ballots were finally counted, however, the SPÖ had narrowly beaten the ÖVP to take first place. Pres. Heinz Fischer asked SPÖ leader Alfred Gusenbauer to form a new government. At year’s end the most likely outcome of ongoing negotiations was the formation of a “grand coalition” between the ÖVP and SPÖ. One of the reasons given for the ÖVP’s poor performance was the reemergence as a political force of the far-right Freedom Party (FPÖ), which ran a strongly xenophobic and anti-immigration campaign.

The Austrian economy grew at its fastest rate in six years in 2006, boosted by strong export demand (particularly in neighbouring Germany) and rising investment. Household spending was subdued, despite earlier tax cuts. In May plans for a merger between Austria’s largest energy supplier and an oil and gas group collapsed amid fears that the utility’s extensive hydropower resources would be acquired by foreign investors. In the same month, the government extended to 2009 the restrictions on labour-market access for citizens from the 10 new EU member states.

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The year opened with Austrian Chancellor Wolfgang Schüssel, whose country had taken on the rotating six-month EU presidency in January, dismissing 2005 as a “terrible year for Europe.” Pres. José Manuel Barroso of the European Commission, the EU’s executive arm, spoke of the need to deliver a “Europe of results” in the aftermath of the constitution debacle....